While most mergers and take-overs between Britain's 92 banks and building societies would naturally reduce costs, even before rationalisation of branch networks, headquarters and back offices, the Lloyds-TSB combination will increase them by 1.29 per cent.
That makes the proposed merger one of the 25 worst possible combinations out of more than 4,000 considered in the study by the Bank of England's David Maude and University of Wales professors Phil Molyneux and Yener Altunbas.
However, Lloyds gets top marks for its choice of the Cheltenham & Gloucester Building Society as the target of its pounds 1.8bn takeover earlier this year. The merged Lloyds-C&G group would slice 10.8 per cent off costs before rationalisation, making it the third best combination among the UK's top 20 institutions.
The Bank of England has been given a copy of the report, Efficiency and Mergers in the UK (Retail) Banking Market, but it has made no formal response and has not endorsed the views expressed by the authors.
Lloyds rubbished the study, saying it "just isn't meaningful". The deals with C&G and TSB were based on completely different rationales, it said, and cannot be compared with each other, let alone with hypothetical deals. Lloyds has 1,800 branches, while C&G has 236 and TSB has 1,050.
"Our merger with the C&G was not about cost savings but about the opportunity to increase revenue by selling C&G mortgages through Lloyds Bank branches," the bank said. "One of the attractions of the TSB merger, however, is the ability to make substantial cost savings through getting rid of duplication in technological development and through economies of scale in head office and back office costs."
The authors admitted that, because it deals with pre-rationalisation costs and does not take account of synergies such as the cross-selling of products, their study does not reflect the final costs or benefits of the hypothetical mergers they considered. But they countered that the complicated mathematical formula they employed is widely used by banks to decide which of their branches are most costly, and therefore likely candidates for closure.
The study concluded that the UK retail banking sector is "remarkably efficient", but that even greater gains could be made through consolidation. Mergers of banks and building societies tend to result in greater savings than those between two banks, and the worst outcomes are from mergers of small building societies.